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The Daily Reckoning

Weekend Edition

September 29-30, 2001

Paris, France

By Addison Wiggin


“After nine months of the Fed’s most aggressive interest-rate cutting ever,” writes Dr. KurtRichebacher, retired Dresdner bank economist, “the newson the U.S. economy and corporate earnings was becomingever gloomier.”

Still, says the good doctor, “expectations and forecasts have remained amazingly positive. For sure, there islittle understanding of the looming economic andfinancial problems.”

As if to prove the point, the Dow closed four of five sessions higher this week, enjoying its best 5-daystretch since 1984. The Dow gained 166 Friday alone toclose at 8847. The Nasdaq rose, too – up 38 at 1498, again of 5.3% for the week. The S&P 500 finished the day22 higher, posting 7.8% of positive results for theweek.

An AAII report Wednesday showed 51% of “individual investors” are bullish – the best of show since May.Bears are down to 22%… from 45% the previous week.

Consumer sentiment as measured by the University of Michigan, fell about 10 points back to 81.8 – the lowestlevel in 8 years, but not as low as many expectedfollowing the attacks… so the data was mostlyignored…

“Even before the outrage in New York,” Dr. Richebacher notes, “the world economy was on the brink of aconcerted recession. But the news [is] readily shruggedoff with the argument that the coming economic recoveryin the United States [is] only a question of time.”(More below…)


By Bill Bonner


“…Going a little mad, sometimes, is not a bad thing. But – there’s a time and place for everything…”


“…Here at the Daily Reckoning, we are a bit disappointed in our fellow Americans. Just when theyseemed to be coming to their senses, after a long spellof overconfidence…it looks as if they’ve slipped intoeven greater fantasy…”


Guest Essay by Martin Weiss, Ph.D.

“…Everywhere in America today, consumer confidence is gone. Americans feel powerless to restore their sense ofphysical security. So they are scrambling to restoretheir feeling of financial security…with the problembeing that right now, most have no cash. They’ve beenliving from hand to mouth for years…”


“…Today, I offer you two ways to take advantage of the coming bear market rally – if there is to be one. Or,merely a chance to buy stocks that are good enough andcheap enough that you could hold them throughout thelong, dark teatime of an economic slump…withoutworrying about them too much…”

09/24/01 IS WAR BULLISH?

“…It is often said that war is bullish…and it is widely predicted that, when the shooting actuallybegins, the U.S. will get the shot-in-the-arm…thatglorious, heaven-sent wound…that sends us home andputs us back on the road to prosperity. Could thisreally be?…”

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HEADLINE, NEWS And INSIGHT: Gold On A Tear…Sell. Sell. S-E-L-L…Woe Is Government At A Time Like This…And…How To Make Money In The Wake Of A “ProfitCollapse”…

The Prospect Of A 1,000% Run Up

by Doug Casey

Why gold shares? Mainly because they’re the most volatile stocks on the face of the planet and thatvolatility can be a very good thing – if you have thenerve to take advantage of it. Despite the dismal stateof the industry, its stocks are up typically 10-20% injust the last month or so. The Gold Bug Index is up 73%on the year.

Your Financial Security Has Never Been In Greater Danger!

by Martin Weiss, Ph.D.

“…No matter what, it’s still not too late to get out.The Dow is still not far from its all-time highs. Evenif you sell at Dow 8000, that’s FAR better than sellingat DOW 5000 where I think this freight train is headednext … or DOW 3500, which could be the next expressstop after that…”

Crises And Keynesians

by Andrew Kashdan

History shows that markets recover fairly quickly from crises, but valuations are still what count. So nomatter what Keynesian theory is brought to bear, oureconomic woes will not vanish when the government wavesits magic spending wand.

FLOTSAM AND JETSAM: Profit Carnage in Corporate America

This Time Is Very Different
– from The Richebacher Letter

“…When was the last time the Federal Reserve cut interest rates eight times in a row and the stock marketstill kept falling?

In past economic downturns, the stock market began tore bound within about three months after the Fed hadbegun lowering its rates. Who has ever heard ofresidential construction rising to a new high whilebusiness fixed investment is plummeting? Why havecorporate profits been plunging since 1997, even thoughthe economy kept booming?

It is indeed very different this time.

Lots of unusual features in the economy and the financial markets need close scrutiny. What we note,however, is a great urge to forecast the forthcomingU.S. economic recovery but very little or no trueinvestigation of the particular forces underlying thisunfamiliar economic downturn.

A broader view, focusing on the economy’s weak fundamentals – and brewing financial trouble – is completely lacking.

As to the U.S. economy’s further prospects, there is, in our opinion, far too much fuss about consumer confidenceand far too little attention to the dominant role of theextraordinary profits carnage, which has forcedbusinesses to slash their investment spending.

What has developed is a tug-of-war between plummeting  profits on one hand and consumer borrowing on the other.Since consumer incomes shrink in line with decliningproduction, consumer borrowing is essentially holdingthe key to sustained consumer spending.

Which of the two will win the day? Plunging capital investment or sustained consumer borrowing spending? Wehave no doubt that rapidly weakening consumer spendingis the impending surprise.

The single most important, most unusual and also most ominous feature in the U.S. economic development duringthe past few years has been the steep drop in profits,which started at the pinnacle of the boom.

It’s definitely the downturn’s one key cause. Everything else – the protracted plunge of stock prices, the savagecuts in business capital spending and the shrinkage ofconsumer income growth – is but a consequence of theprofit carnage…”

Addison Wiggin,

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